|
|
A
Revocable Living Trust (RLT) is a document in which you as the
owner of the property (called the trustor) transfer title to you
as trustee of your Trust, for the benefit of you as a
beneficiary. These Trusts have been in existence for hundreds of
years and were traditionally used by wealthy individuals to
escape probate and obtain tax advantages.
In
any type of Living Trust, out of one position today, owner of
your property, you can create three positions for yourself:
trustor (owner of the property), trustee (legal title holder of
the property), and beneficiary (the person receiving the
benefits of the property). One of these positions, that of
trustee (legal title holder) is the position that will pass
automatically, by operation of law on the date of your death.
Because of this automatic passing of power on your death, all of
the power that you possessed immediately before your death now
passes to your successor trustee. So, it is that any act that
you could do one moment before your death now passes to your
successor trustee(s).
Click on any of the following to learn more about Revocable
Living Trusts and Wills.
Advantages of
Revocable Living Trusts
|
 |
A
Revocable Living Trust avoids probate on death, incapacity,
and minority
In a RLT, you state exactly how you want your asset
distributed on your death, and to whom they are to be
distributed. This includes all bank accounts, real
property, and personal property. In other words, an RLT
is just like a Will in this respect.
Additionally, you appoint a person or persons who you
desire to manage your assets according to your
instructions in the event you are ever incapacitated.
You may appoint a different person or the same person to
make your health-care decisions according to your
instructions. Therefore, whenever two licensed
physicians, not related by blood or marriage, state in
writing that you are NOT able to handle your own
affairs, the person(s) named in Trust are AUTOMATICALLY
able to take over and make decisions according to your
instructions WITHOUT COURT INTERVENTION.
In the event you have minor children, your RLT will
provide for the person(s) who are to have physical
control over your children and physically raise them.
You will also name the person(s) you wish to manage the
children’s money until they reach the age of majority
or the age you state you want them to receive the money
outright. Your RLT will provide detailed instructions,
to insure that your children are raised and cared for
according to your wishes. A COURT WILL NOT BE INVOLVED.
Because an RLT avoids probate during incapacity, and on
death, all of the costs of probate are also avoided.
|
|
|
Revocable
Living Trusts are inexpensive
When compared to the minimum costs of probate, RLTs are
inexpensive. Since many different types of RLTs exist,
it is difficult to say exactly how much your RLT will
cost, but it will cost somewhere between $1,000, and
$1,500.
|
|
|
Revocable
Living Trusts are private
Unlike probate proceedings, which are open to the
public, RLTs are private documents. As a consequence,
only your successor trustees and beneficiaries will know
the extent and degree of your assets, the number and
amount of your debts, and what relatives or friends
received what portion of your overall estate.
|
|
|
Revocable
Living Trusts avoid out-of-state probate
Your out-of-state land and all property will be a part
of your California Revocable Living Trust. A new deed
will be prepared in your name as trustee of your Trust
and recorded in the county in each state of the union
where your out-of-state property is located. Hence, when
you die, your successor trustee will have all the power
to sell, rent, etc., that you now possess over that
out-of-state property.
|
|
|
Maximizes
tax advantages
With the RLT, on the date of death of the first spouse
or single person to die, the beneficiaries receive an
automatic 100% step-up in basis in all of the real
property, stocks, and bonds. Thus, the beneficiaries
will have NO CAPITAL GAINS TAX TO PAY on the sale of
said property, to the extent that the assets are
protected by the Trust.
Additionally, the RLT can double the Federal
Inheritance-Tax Exemption from $675,000 to $1.35 million
if the client’s assets are over $675,000. Remember,
that you could accomplish the same thing with a Will, by
inserting a Trust into the Will (called a Testamentary
Trust). However, if you choose to double the Federal
Inheritance-Tax Exemption by inserting a Trust in a
Will, you would first have to go through probate, and
pay the cost of probate, in order to later establish
this type of Trust. If, however, you have an RLT with a
second trust inside the RLT, YOU WILL NOT HAVE TO GO
THROUGH PROBATE TO DOUBLE THE FEDERAL INHERITANCE-TAX
EXEMPTION.
There is no increase in real property taxes to the
extent you transfer your real property into trust. With
regard to your home, the Supreme Court has ruled that
the Due on Sale clause is inapplicable when a homeowner
transfers title to his or her home into his or her RLT.
This makes sense since there is no real “change of
ownership” such as when you sell your home. The
purpose behind the Garn St. Germain Act was to allow
lenders to accelerate the mortgage when you sold your
home, thereby “changing owners.” Additionally,
lenders traditionally have not called the loans due and
payable when rentals are transferred into an RLT.
However, in the case of rental property, our law office
generally seeks the lender’s consent, to insure that
the loan will not be called due. The reason for this
additional precaution with rental property is that there
is no Supreme Court decision on point, which
specifically forbids lenders from accelerating the loan.
Traditionally, the lenders agree to the transfer and
charge a service fee of anywhere from $25 to $60 for the
documentation.
|
|
|
Return to Top |
Maintain
100% Control Over Your Assets
With an RLT, you maintain 100% control over your assets AFTER
you form the Trust, the same way in which you control them
today. There is no difference whatsoever. You will file the same
tax return using your same Social Security Number. Prior to
1982, the IRS required that Informational Returns be filed if
you establish an RLT. This requirement has been abolished.
Flexibility
and Revocability
RLTs
are flexible in that you can place assets into your Trust and
take assets out of your Trust. However, our clients, under our
direction, learn to place assets inside their Trust, and AFTER
their RLT is fully funded, they then buy and sell directly from
the RLT; hence, they do NOT continually place assets inside the
Trust or take assets outside the Trust.
Rapid
Transfer of Assets on Death
As long as the estate of a couple is under $1.35 million, the
assets can rapidly be transferred on death. Although different
sizes and types of estates take different amounts of time to
settle and therefore cost different amounts of money to settle,
you can anticipate, for example, with an estate of somewhere
between $60,000 and $600,000, that the children or beneficiaries
will generally need to spend approximately on to three hours
with an attorney who will provide them with a “To Do” list
and prepare the Affidavits of Death and other requisite
documents. The children can, of course, visit any
Estate-Planning Attorney in any State of the Union for this
service, but we recommend that you see an attorney who
specializes in this area of the law.
RLTs
Avoid the Costs of Probate
The minimum costs of probate as set forth by the California
Legislature begin at %6,700 for a $100,000 gross estate. On the
other hand, the cost to settle a $100,000 gross estate with a
RLT would be approximately $300, or whatever the attorney
charges for a one-hour consultation and preparation of the
Affidavits of Death.
Remember also that the RLTs avoid the costs of probate of
incapacity and during minority, as well as on death.
Can an
RLT Decrease Death Taxes?
There exists a
specific type of RLT, which can double the Federal
Inheritance-Tax Exemption from $675,000 to $1.35 million. It is
designed for persons who have estates over $675,000. Such a
Trust can be used between a husband and wife or between a single
person and a child or beneficiary.
With a simple husband/wife Trust or a simple Will, the spouses
together can only leave $675,000 tax-free to their children or
beneficiaries when the last spouse dies. The reason for this is
that each one of us is legally allowed to pass on to the next
generation $675,000 tax-free. However, with a simple Will or
Trust, the husband and wife often leave everything to one
another first and then to the children or other beneficiaries on
the date of death of the surviving spouse. When this happens, on
the death of the first spouse to die, the surviving spouse
receives all the property, but, since there is no mechanism to a
simple Will or Trust for carving out and saving the decedent
spouse’s $675,000 exemption, his or her exemption MERGES with
that of the surviving spouse so that on the date of death of the
surviving spouse, only one $675,000 exemption is available to
the children or beneficiaries.
With a more complex Trust or Will, the decedent spouse’s
$675,000 exemption can be saved by inserting a special
Decedent’s Trust into the Will or RLT, which identifies the
decedent’s assets and saves the exemption. Should you choose
to use a Will with a Trust, remember that the Will has to be
probated first and then the Trust established. Needless to say,
you will then have to pay the costs of probate first IN ADDITION
TO PAYING FOR THE ESTABLISHMENT OF THE TESTAMENTARY TRUST.
For
estate in excess of $1.35 million, there exists Grantor Retained
Annuity Trust, Life-Insurance Trusts, and other Irrevocable
Trusts designed to protect assets over the $1.35 million limit.
Protection
of Assets
Many single persons, as well as married persons, frequently ask
how they can protect their assets from creditors. The basic
answer is that, as a general rule, RLTs do NOT provide
protection from creditors.
However, to the extent that only one spouse’s assets are
subject to attack from creditors, the spouses can develop
separate RLTs with a Separate-Property Agreement delineating in
advance which property belongs to whom. As long as this is NOT
promulgated to defraud creditors, the Courts will honor the
separate RLTs and Separate-Property Agreement, and the spouse
who is not being sued will NOT lose his or her assets. Family
Limited Partnerships are also used in combination with an RLT
for this purpose.
|
